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The NHS as a whole achieved a net surplus of £515 million in 2006-07, compared with a net deficit of £547 million in 2005-06, according to a report out today by the National Audit Office.

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The NHS Summarised Accounts show that in 2006-07 287 NHS organisations reported a gross surplus of £1,431 million (2005-06: 357 organisations reported a gross surplus of £765 million); offset by 82 NHS organisations reporting a gross deficit of £917 million (2005-06: 179 organisations reported a deficit of £1,312 million). The NHS is currently forecasting a net surplus of £1,790 million for 2007-08.

The gross deficit is concentrated in a relatively small number of NHS organisations; some 80 per cent of the gross deficit of £917 million arises from just 10 per cent of organisations. The NAO found that for a small but significant number of Primary Care and NHS Trusts, restoring financial balance remains a significant challenge.

In total, Strategic Health Authorities reported a net surplus of £962 million for 2006-07 (2005-06: £526 million surplus), Primary Care Trusts a net deficit of £370 million (2005-06: £492 million deficit and NHS Trusts a net deficit of £77 million (2005-06: £581 million deficit).

For Primary Care Trusts (PCTs), 28 per cent reported a deficit, totaling £636 million (2005-06: 36 per cent reporting a deficit totaling £616 million). Although the proportion of PCTs reporting balance or a surplus increased in 2006-07, the overall net deficit is due to the financial performance of a minority of organisations. And the size of the deficits in those organisations with the poorest financial standing is increasing year on year.

There is a variation in performance between types of NHS Trusts. Acute trusts reported a deficit of £133 million compared to mental health and learning disability trusts which reported a surplus of £47 million. The number of NHS Trusts reporting a surplus is increased in 2006-07 and there has been a significant reduction in the number and size of deficits reported between 2005-06 and 2006-07.

In order to achieve financial balance in 2006-07 the Department of Health and the NHS introduced a number of initiatives. Risk reserves were established at Strategic Health Authority level by reducing allocations to Primary Care Trusts (“top slicing”) and by identifying savings from central NHS programme funds. Underlying financial problems were identified and support provided to those organisations with the most significant financial problems. And tighter performance management and more transparent financial reporting were instigated.

The report concluded that those organisations that perform best financially also tend to provide a higher quality of care for patients.

There are a number of challenges ahead for the Department and the NHS if they are to achieve longer-term financial stability.

  • The Department and Strategic Health Authorities need to assist those NHS organisations that remain in deficit. Improving the financial performance of those organisations with significant deficits is essential for embedding good financial management across the NHS as a whole. These organisations also need to replicate the improvements in quality already achieved by the rest of the NHS.
  • Complexities within the NHS present future financial challenges. Payment by Results and Practice Based Commissioning reduce certainty around income for NHS Trusts and challenge PCTs to secure the services needed while managing within budget. Ongoing restructuring will bring further costs in 2007-08.
  • The Department has identified the opportunity for significant savings through increased productivity. NHS organisations must focus on releasing these savings while continuing to improve services for patients.

"The NHS achieved a surplus in 2006-07 after a period of rising deficits. But this is not a time to be complacent; both the Department and the NHS accept that a number of challenges remain.

"The national picture is one of financial balance, but there remains a relatively small core of NHS organisations that continue to report significant deficits. There is no doubt that good financial management is linked to good patient care in the long term. A failure to keep a tight grip on financial performance will undermine service quality, an area in which the NHS must not let patients down."

Sir John Bourn

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